Serbia holds rate, stresses need for "cautious" policy

    Serbia's central bank maintained its policy rate at 9.5 percent, underlining the "need for a cautious monetary policy, particularly in light of the developments and expected liquidity strains in international financial markets."
     The Bank of Serbia, which cut its rate by a net 175 basis points in 2013 as inflation slowed, said the need for external financial persists, despite a significant narrowing of external balances due to rising exports, an called for a consistent implementation of fiscal cuts to help increase the country's resilience to risks from the international environment.
    Last week foreign exchange market dealers said the central bank intervened repeatedly to curb losses of the dinar by selling euros and on Wednesday the central bank sold 20 million euros for total intervention this year of 350 million euros, up from 330 million in January "to ease excessive daily volatility of the exchange rate." Foreign exchange reserves were 11.126 billion euros end-January.
    Serbia's dinar weakened sharply in May 2013 and has continued to ease since then. Today it was trading at 115.81 to the euro, down 3 percent since the end of 2012, but only down 1.1 percent since the beginning of this year.

    Serbia's inflation rate, which tumbled in the second half of last year, rose slightly to 2.2 percent in December from November's 1.6 percent, but the bank said "demand-side and cost-push inflationary pressures have lessened significantly."
    The central bank, whose board will present its latest inflation report on Feb. 20, has said it expects inflation to rise moderately in coming months due to higher administered prices and a one-off impact of higher value-added-tax on some goods in January.
    The central bank targets inflation in a range of 2.5-5.5 percent around a 4.0 percent midpoint.
    Serbia's economy has been improving in recent months after two years of recession, with Gross Domestic Product up by an annual 2.6 percent in the fourth quarter. The bank has forecast growth of 1.5 percent in 2014.

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